Ryanair Holdings PLC (RYAAY) 2017 Q4 法說會逐字稿

Hello and welcome to today's Ryanair full-year 2017 results call Throughout this, all participants will be in listen-only mode and after this, there will be a question-and-answer session. And just to remind you, this call is being recorded. And at this point, I'm very very pleased to pass you over to the line of Michael O'Leary, Chief Executive Officer. Please go ahead.

Good morning, everybody, and welcome to the Ryanair full-year results conference call. I'm in the US. Neil Sorahan and most of the team are in London and various spread around the rest of the destinations. We're going to run through this quickly because we're a bit tight for time. So if you see, this morning we reported 6% increase in full-year net profit to EUR1.3 billion with a combination of 13% cut in average fares, 13% traffic growth, and unit costs fell by 11%. We delivered Year 3 and we've announced Year 4 initiatives under our AGB program and we returned EUR1 billion to shareholders. During this year our two aircraft base in Frankfurt Main will increase to seven aircraft in September, in April we opened a base in Naples that's performing very well, and in the autumn we opened up bases in Memmingen Munich and Poznan as well as launching our first flight to Tel Aviv and the Ukraine.

One of the key trends for us is that as legacy competitors particularly in Italy and Germany are undergoing deep restructuring, we're juggling more opportunities for growth in 2018 and 2019 than our existing fleet growth can accommodate. Accordingly, we're undergoing a fleet review particularly with a view on the next 18 months. We have plans in place now to extend 10 of our planned lease returns over those two years and we're talking to Boeing about taking up a small number of additional delivery stock they may have, four or five additional aircraft, so that we'll be able to add about 15 aircraft between extending the leases and new purchases for additional capacity in the summer of 2018 and 2019. AGB continues to improve our results. We recently announced Year 4, which we'll roll out over the next 12 months. That will include delivery of connecting flights, which we've now launched initially at Rome Fiumicino airport, but they will be rolled out to other airports.

Subsequently, last week we began selling long haul flights from Madrid with Air Europa. We now offer our customers 20 long haul destinations in North, Central, and Latin Americas. As the success of Labs is reflected in our growing load factors and record traffic, ryanair.com is now the most visited airline website in the world. Our mobile app is had over 20 million downloads and membership of MyRyanair will grow to 30 million members by the FY18. As a result of the impact of Labs and Ancillaries, Ancillary revenue to grew by 13% last year to EUR1.8 billion and is well on track to hit our target of 30% of total revenues by March 2020. Touching briefly on people. In April we negotiated new pay and condition agreements through collective bargaining process with 10 of our pilot and cabin crew bases, which were outstanding. It means now that all of our 86 bases are covered by five year pay and conditions agreements, which guarantees both our pilots and cabin crew industry leading rosters, pay increases every year.

At a time when many of Europe's airlines are cutting pay, pensions, and jobs; this combination of job security and annual pay increases is a key attraction for Ryanair's people. We also had a major win in the European Court of Justice ruling in the A-Rosa case. It means that the French and to a lesser extent the Italians will now have to stop trying to ignore Irish Social Tax Certificates what are called A101s. It means we're now returning to the French courts to recover about EUR15 million of unlawful double-charge double taxation, which was imposed on us in France and provisions made for similar charges in Italy where we expect will now fall away. The balance sheet remains very strong. At the end of the year, we had a modest net debt position of just over EUR200 million having spent EUR1.45 billion on aircraft CapEx last year and just over EUR1 billion in share buybacks. In February we raised another EUR750 million bond in the eurobond market at an annual coupon of just more over 1.1%.

The success of the buyback program is underlined by the fact that in a difficult year when profits grew by just 6%, earnings per share have accelerated by more than double this rate to 14%. Our Board I'm pleased to say has approved a further EUR600 million share buyback, which will start this week in June and subject to market conditions, we expect will be completed by the end of October. Because the current split of ordinaries to ADRs is 58% to 42%, this buyback will be confined to ordinary shares and will increase the quantum of funds that we have returned to shareholders since 2008 to just over EUR5.4 billion. Brexit remains a medium-term concern for us. We hope the UK will remain in Open Skies, which will mean no change for UK consumers and visitors. However, the UK government has indicated it does not wish to abide by ECPR European Court of Justice rulings and if they hold to that line, it means they will inevitably leave Open Skies.

We worry and have grave doubts that the UK will be able to put in place or negotiate a bilateral between it and the European Union in the short period to March 2019 and we believe there is a significant possibility of a disruption to flights between the UK and Europe for a period of time; maybe weeks, maybe months; after March 2019. In terms of outlook, as usual at this time of the year our outlook is clouded by the absence of H2 yield visibility. We will grow to 130 million passengers. That's up 8% over the next year by being load factor active. Forward bookings into H1 are reasonably robust. They are running about 1% ahead of where they were last year. However, I caution that pricing remains soft and particularly the pricing on close-in bookings through June, July, August will be heavy dependent on the absence of security events at Europe's cities and airports and the incident in Manchester last week wasn't a good sign in that regard.

We expect full-year 2018 average fares will decline by between 5% to 7% due to a combination of weaker sterling and continuing excess capacity in Europe and we'll be feeding that capacity by trying to step up our growth in both 2018 and 2019. We expect, however, our fuel bill thanks to our hedging will fall by $70 million in the current year, but we'll pass those savings on to customers in the form of lower fares. We expect our ex-fuel unit costs to fall by 1% in FY18. And as a result of these factors, we're cautiously guiding for an 8% increase in full-year net profits to a range of EUR1.4 billion to EUR1.45 billion. Investors should however be wary of the risk of negative Brexit development or any repeat of last year's security events at European cities, which could damage consumer confidence particularly on close-in bookings during the remainder of H1 and into H2. And with that, I'm going to hand you over to Neil for a quick run through the MD&A and then we'll open it up to quick Q&A. Neil?

Michael, thanks very much. I'll just repeat a couple of points there that Michael made. Unit costs very strong in the year. We saw unit costs down 5% on an ex-fuel basis, which was ahead of the minus 4% that we previously guided and targeting another 1% in the current financial year. Our balance sheet very strong at the end of the year. A BBB+ rated balance sheet, which is why we raised debt at just over 1% in the debt markets. We had a modest net debt position of just over EUR200 million at year-end having spent EUR1.45 billion primarily on aircraft CapEx and returned over EUR1 billion to our shareholders through share buybacks. Michael, I think you covered all the other issues there so back to yourself.

Thanks, Neil. We're going to open up to some questions and answers. But as we're a little bit tight for time, if you'll forgive us and remember we have all of these information, the Q&A, the video results are up on our website; we will allow about 40 minutes for Q&A. And I'd ask anybody who's asking questions, please confine yourselves to no more than two parts to any question so we get through this quickly. Let's go. [Martin], let's start with the questions, please.

(Operator Instructions) Savanthi Syth, Raymond James.

For my first question, I was just wondering on the introduction of connecting itineraries. How you're handling the kind of operational complexities given some of the importance of your turnaround? And then for the second question, just wondering where the sourcing of the aircraft for the Polish charter subsidiary was coming from and what the benefits of setting up the operation the way you're doing it is? Thank you.

We kind of are somewhat cautious in rolling out the connecting service. But remember we're starting with Rome Fiumicino where our handling agents are well used to dealing with connecting flights there. And if they are connected through the connecting product, now we can find about 15 routes through Fiumicino. As the passenger connects, he gets off the aircraft but he remains at the air site whereas the bag is delivered straight through to the destination. I think you'd expect us in the next month we'll roll that out too. The first month or so of that has gone particularly well. We've had no operational issues. We wouldn't expect connections to affect our turnarounds. We certainly won't be delaying an aircraft for a late arriving passenger or a bag, but the issue for us is can customers comfortably make those connections. We started off, we had a minimum connection time of two-and-a-half hours anyway.

So we will see how we can improve the process as we go forward, but we don't expect it to have any impact on turnarounds and there seems to be significant demand for it. The Polish charter, Ryanair Sun, will start flying in the summer of 2018. It will have a Polish AOC and a Polish management team. It will have the freedom therefore to go outside the European Union directly from Poland and there is significant demand in the Polish charter market for destinations in Turkey, in Egypt, and in some of the North African countries. It's a somewhat sizable and lively charter market in Poland. I think it will ultimately convert to flying schedules as most of the other countries have done, but the difficulty for us is we don't yet have enough aircraft to allocate to the Polish market. We're Number 1 in Poland by a considerable distance, but we can't grow fast enough because we are also allocating our new aircraft to markets in Spain, Portugal, Italy, Ireland, and Germany in particular.

So one of the ways of us getting into that market and servicing it is to set up a separate Polish charter facility, which will start with five aircraft in 2018. It will grow to 15 aircrafts in summer 2019, which will make us probably the biggest Number 1 charter airline in Poland as well and I think it reinforces our position. We are not just the Number 1 airline in Poland, but we're also the Number 1 airline in Central and Eastern European markets. There are some other high fare airlines out there claiming that title, but they've managed to exclude a number of countries so that the math works out for them. We are the Number 1 in Poland, we are the Number 1 in Central Europe, and we have lower cost than either the incumbent Polish charter airlines of which there is about three of them and we have significantly lower cost than any other airline in the Central European market.

Daniel Roska, Bernstein.

First one, let's stay on Ryanair Sun. Could you share some details on the company structure, how you've set that up in Poland to ensure local flying rights and could you confirm that you'll be going for charter rights and not for scheduled rights with that AOC? And second question around the current ownership structure in the light of Brexit. What is your current amount of UK nationality in terms of ownership and how are you progressing to ensure your community license under EU 2407? Thanks.

Ryanair Sun, I don't want to spend too much time on that. It's a reasonably small 5 aircraft in the context of our 400 aircraft fleet. It is set up with a separate Polish subsidiary. It will have a Polish AOC. It will have Polish senior management and most of the policyholders in Ryanair Sun will be Polish. It does however benefit from using Ryanair's very low cost 737:800 series aircraft and Ryanair will provide it with a number of services which will ensure that it is by far and away the lowest cost charter airline in Poland. And the ownership structure post Brexit, we think approximately 20% of our shareholder base at the moment is UK nationals. A lot of those are hedge funds and pension funds and it won't affect our flying rights post Brexit because we are an EU airline with an Irish AOC. There may be an issue though where UK ownership and treating UK shareholders as non-EU shareholders.

In those circumstances, I envisage a period of time where either they will be disenfranchised or required to sell in much the same way as we are required to keep the non-EU share ownership down below 50%. We don't see that as being the big challenge in Brexit. I think that would be the least of our concerns. I think the big concern of Brexit is that the UK doesn't have any plan B if they leave the Open Skies. We've had a series of meeting with the UK government and it's quite clear they're absolutely clueless and we worry somewhat that the Europeans are determined possibly to use aviation as a lever in the Brexit negotiations because we'll all be filing our summer 2019 schedules in summer 2018 with no certainty over whether we'll all have flying rights between the UK and Europe in those circumstances.

Stephen Furlong, Davy.

Alitalia is in its administration. What's the working assumption there if they restructure? Is that one of the airlines you could connect with and take some of the short haul off their hands? And maybe just a second question, just a quick update on Ryanair Rooms that would be great, Michael?

I think Alitalia we do expect it will re-emerge from the fact that the Chapter 11 process is going through. We think it emerges as a somewhat different airline with more of a focus on long haul flying to and from Italy where we believe it can make money in the medium term. We think though it comes out a lot smaller on the short haul side where it's frankly incapable of competing with Ryanair's lower cost low fared Italian routes and the short haul routes to and from Italy. I've had discussions with Alitalia, David O'Brien, we have offered to feed them. We think that may be one of the ways in which we can assist the process now that we have significant short haul operations in Rome and Milan, in Sicily in the South of Italy.

We think that if we are willing and offered to feed them on those routes, it would allow them to I think retreat from a significant proportion of the short haul business where they lose money hand over fist. We think that's one of the ways we can assist the process. In terms of Ryanair Rooms, I'm pleased to say like everything else in Labs penetration is rising significantly at the moment although we are doing a lot of price incentives to build penetration across a lot of the Ryanair Lab services. It's one of the areas where we're seeing a lot of traction in Labs, our ability to pump those services now to consumers by offering them price incentives. We will in the next week or so add a fifth room supplier. It gives us I think (inaudible) access to over 100,000 rooms now through this summer in Europe and it is building significant traction.

I'll just add in there, Stephen, that we'll add in the fifth room provider over the course of the summer. A Version 2 of the Ryanair Rooms website went live in the past couple of weeks. It's a website that will absolutely hold its own against other accommodation booking websites with an integrated Google Maps et cetera, et cetera and it's fully mobile friendly and conversely falling nicely in line with our expectations.

Anything you want to add on Alitalia?

Another part of our offer to Alitalia was that we could give them an Air Europa type solution in addition, which is where we would sell their long haul flights on our website, which is now the biggest airline website in the world. Unfortunately management has been in a stage of flux, but we have alerted the new commissioners to our previous proposals and we expect that as part of the restructuring process, they will be following up on that.

Duane Pfennigwerth, Evercore ISI.

I wondered if you could comment on the Easter shift impact to Q4 and Q1; how yields are trending in Q1? And then just for my follow-up, what is the structure of the revenue share agreements on these long haul sales? Thank you.

As you were slightly breaking up on the line there, Duane, but if I understand the question is what's happening on Q1 yield. Q1 yields are strong and somewhat distorted by the fact that Easter has fallen entirely into April so against in the prior year it happened in Q4 and Q1. So Q1 the performance is strong. (technical difficulty) fares will be down over Q2 last year, but the range of decline is less than it was in FY17, which is why we are guiding kind of fares down minus 5% to minus 7% for the full year whereas last year it was down minus 13%. And I take the comfort from the fact that we could still increase profits in a year when fares fall by 13%, Ryanair still delivered 6% growth in profits which is a significantly better performance than most of our EU competitors. But I would be little bit more cautious at this point in time on yields through H1. I see lot of airlines in recent months talking of the first half of the year and yield performance and talking it up, I think that's a little bit overdone. I would rather get closer to Q2 and we also have to have a wary eye out on security events in Europe such as if there's repetitions of the event in Manchester in other European cities, then I think it would be negative to that guidance. The second part of the question, which I've now forgotten was what?

The structure of the revenue share agreements, is it a commission based agreement or --?

Commission based agreement at the moment. And now with Air Europa, we're selling 20 long haul flights from Madrid. We have 54 short haul routes into Madrid, we can now feed those on to their 20 long haul routes; but it does give us access to routes back to New York, Miami, Boston, Havana, Buenos Aires. At the moment, we take a flat commission by giving them access to our customer base of 130 million customers. We are working hard with them and we hope by the end of this year or Q1 of calendar 2018 to be able to connect those passengers to Madrid so the bags will go straight to their long haul destinations and passengers will connect through Madrid airport. And I think that's when it begins to become a much bigger and more interesting arrangement, but it also sets the kind of a forerunner for our ongoing discussions with Aer Lingus, Norwegian, and some of those other long haul carriers. I think it's the birth of a trend there. The difficulty we're having in cementing the other agreements is getting the computer systems to speak to each other is somewhat complicated. Aer Lingus and Norwegian and some of the others don't move at the speed that we do, but then they don't have kind of the skills we have in-house within the Ryanair Labs scene.

Damian Brewer, RBC.

First of all, could you just comment a little bit more on the comments in the prepared Q&A on the website about growth incentive deals with airports and particularly what we should expect to see in 2017, 2018? Is this just a year-on-year effect of last year's performance or is there more to come and can you talk a bit more about that? Secondly on the CapEx plans, could you just elaborate a little bit more on whether there's any reprofiling there at the moment? And I note the fleet plans in the back of the presentation [have] changed so I assume that is before your comments about the 10 lease returns, which will now be delayed and potentially five extra aircraft?

I'll turn over the growth incentive deals at airports to David O'Brien and then I'll ask Neil to deal with the CapEx question. David?

The six growth incentive deals we've secured over the last year are reflected in the forecast for this year. The work we're doing now will probably be more evident in FY19. In the last four weeks we've met with 180 airports, almost all of whom have provided us with improved offers associated with the potential displacement of traffic from the UK in the event of a very high Brexit. So, that's the conversation at the moment around in the displacement of capacity potentially and 180 of our 200 plus airports have come forward with offers of varying quality, but the trend is certainly in the right direction. As you know, we're going to grow in Frankfurt from two aircraft to seven this winter and from 4 routes to 23 or 24 routes. Similarly in Naples, we'll be growing from a modest number of routes upwards into the 20s as well. That's it really in summary.

In CapEx this year we have 50 aircraft deliveries, we're scheduled to have six lease handbacks although we're in negotiations in relation for three of those handbacks to give us extra pickup into the summer of 2018. Separately we're in negotiations on a further seven, which would give us more pickup into the summer of 2019 on top of those three. So, there's no real change to the actual CapEx plans at the moment. We have said that we would be willing and more than happy to talk to Boeing about any incremental pickup that they might have for two or three aircraft around the edges say over the next 24 months. But as things stand, we're looking at a CapEx spend of about EUR1.5 billion in the current year, of which EUR1.2 billion is in relation to aircraft CapEx and about EUR300 million on maintenance CapEx. Similar kind of numbers into the following year as well. We see a stepdown this year in our euro-dollar exchange rate where we had been hedging ourselves at $1.37 two years ago, $1.34 last year, and that comes down to $1.23 in the current financial year. But you talk about reprofiling of the CapEx, no real profiling there. Just happy to take more aircraft if there are some available at the right price.

Jarrod Castle, UBS.

One, IT resilience obviously very topical at the moment. Can you give any color in terms of how much OpEx and CapEx you invest in IT each year and then just why the confidence in terms of resilience obviously you're growing quicker than most airlines in Europe? And then just secondly, the last time you did a special was in 2015 so another buyback which obviously the market likes. But just in terms of your thinking, why since then you've been doing buybacks rather than specials, Michael? Thanks.

I'll do the specials and buyback question and I might ask John Hurley to talk about IT resilience and maybe why we think what happened with BA over the weekend wouldn't happen to us. As I said, the Board continuously reviews on an annual basis whether one, what the surplus cash will be and two, whether we do special divs or buybacks. And our experience frankly over the last number of years is we are tending towards buyback where the PE multiple is below 15 and I think if the PE multiple went above 15 or the share price got a bit kind of toppy, then I think we would look at doing special divs. What would be the interesting slide I would refer you to. There's a very good slide at the back of the full-year presentation where we've shown the record for the buybacks over the last eight years. We bought back 22% of the total equity over the last eight years. The average price of those buybacks is EUR8.50, current share price is hovering somewhere I think around EUR17.

So, I think that buybacks are delivering tremendous value to our remaining shareholders. The other issue is despite the fact that I would be a significant beneficiary of a special div, I remain very reluctant to be wasting our time on road shows around talking to people who are talking about basis point of this, that, and the other in what remains a capital intensive cyclical business that is exposed to multiple shocks whether it be terrorism, Brexit, or God knows what else. I don't have the time or the patience to be worrying of the people who are worrying about their yields. But I think the value that we have delivered by buying back 22% of our equity over the last eight years at an average cost of EUR8.50 is reviewed that as long as the PE multiple is below 15 and we are seeing our earnings rising, then it makes sense to continue to do buybacks. John, you want to touch on IT so give us our thoughts on we still can't understand what happened to BA's disaster recovery program over the weekend. Do we have John Hurely on the line?

It looks like we don't.

A couple of things. We are not sure yet what the hell happened with BA over the weekend. We have been mystified by the lack of information or clarity coming out of them. But our view of the world is as follows. Firstly, in many respects we have a smaller kind of simpler IT platform than someone like BA does. We have one system, we don't interconnect, we know where we feed ourselves so we don't feed others. But I think what's important in all this is we don't have one single data center. We actually have our systems spread across five data centers. Our operational systems are in the headquarters in Dublin, but we have websites in three independent data centers. We also have differing support systems; NetLine, AMOS, et cetera. So, they're spread across five different independent centers. We have a disaster recovery program in each of those five centers.

If one center falls over, the other four have significant volume and can readily take the burden. We regularly probably twice annually do disaster recovery testing for all of those critical systems. Now I hasten to add I'm always very nervous when you say it could never happen here because it's inevitable as we grow, we will have some IT glitches along the way but we don't think we would suffer the outage the way BA suffered this weekend because we don't have all of our systems in one place. I'm a little bit unsure of yet although it's not a criticism in anyway. We're unsure as to why BA who must have quite sophisticated disaster recovery systems, why did the DR processes fail particularly the DR processes on the critical systems. So, we think we have a simpler infrastructure and it's spread across five different data centers and each of those five has an independent data recovery process.

Michael, John Hurley here. Sorry I pressed the wrong button. You're doing well there it sounds like. So the difference between us and what happened in BA is they have one data center, they have all their eggs in the same basket. In Ryanair we have a different approach where we have lot of resilience across our network. For example, our website is located across three different data centers; one in Dublin, one in London, and one in Frankfurt. Our back-end system then is located in a different center again also located in London. And our actual IT operations is located in a safe location. All of these have got full DR capabilities in place and can be fully restored in 15 to 20 minutes. So I think in that perspective, we are in a different mindset and different approach to what happened unfortunately to BA over the weekend. And also as a guidance for what we're doing in the future, we're actually moving more of our new software to the cloud. So, that Rooms part there that we launched last year is actually hosted in Amazon and we'll continue to strategically move key pieces of infrastructure and take advantage of the cloud's scalability and resilience as we develop more features.

And I think it would be fair to share with investors too like we are the subject to occasion. We have been the subject to all the tax in our systems. We have been the subject of malware. We've also had occasions where one of our centers has gone down, but you haven't noticed it because the DR systems seem to be effective and the lack of reliance on any one center means that the other centers have more than sufficient capacity, So far so good, but there for the grace of God goes any of us.

Andrew Light, Citi.

Can you give us an update on Ryanair Holidays because I believe there was an interruption in supplier towards the back end of last year and how that's progressing? And then secondly, does the ECJ ruling on A-Rosa change your view on the ability to do business and maybe set up bases in France?

Ryanair Holidays like a lot of the other ancillaries is actually growing very rapidly. Now it's growing of a very small base, but the penetration figures are rising significantly at the moment. The interruption in supply we had last year is that one of the partners that we had. One of our (inaudible) was that none of our partners are allowed to engage or distributed our products to screen scraper or it would give them an access for a screen scraper to be scraping our fares and prices and because they couldn't fix that, we totally switched it off last year. That continues to be kind of at the core of everything we do in Ryanair, we are not facilitating screen scrapers and where we can, we're going to shut them down. And that's because we don't want our passengers either misled with misinformation or overcharged and duped into paying higher fares than they can get on ryanair.com.

But Holidays is growing strongly. Again like most of ancillaries, the conversion ratios are growing strongly but on the back of aggressive pricing and we will continue to price aggressively but it will be at that kind of penetration or grow penetration over the next 12 months, 2 years. The ECJ ruling, no I don't think it opens up the prospect of bases in France, Andrew. I think it puts the name [chronically] to be waiting just to see of the behavior of the French authorities over the last two years where we had temporary bases in Marseille. Our people are paying their taxes in Ireland, which they are required to do under Irish law and their social taxes either in Ireland or for the new employees in the country which they're based. The French then come along and say no, you were here for six months or five months in Marseille, now you have to pay us social taxes as well.

The French ignored the EU, the instructions from the European Commission and the European Union to obey Irish (technical difficulty) and therefore we are delighted with the outcome of the Rosa ruling, which effectively means the French can no longer ignore the EU rules on social taxes. But I think the issue for us in French bases is more and more we dislike the legal system in France, we dislike the kind of proper union culture, we dislike the fact that they can strike whenever they feel like it and the employers have no stick to beat them with, and frankly we don't need France. We're growing very strongly in Germany, Italy, Spain, Portugal, all over Europe. We can wait for the French system to come around to our way of thinking and we hope that with the election of Mr. Macron, there will be some reform in the crazy labor system in France that allows for example 3,000 French air traffic controllers to hold half of Europe to ransom 15 or 16 days every year, but that's a longer-term issue.

Mark Simpson, Goodbody.

Just two things I want to pick up from some of the opening statements. The commentary about wage deals across the board, I'm just trying to get an idea of wage inflation that we should build into our models. I've got circa 2%, is that reasonable? And then the other thing, you mentioned currency a couple of times. I'm just wondering if maybe Neil could give us an idea of what the assumptions are within your fares in terms of the impact of sterling weakness, but also feeding that through into the guidance on cost given sterling. It might suggest that 1% could be better and I'm assuming 1% unit cost is actually an underlying ex-currency guidance?

Neil, I'll take the first on wage deals and you could do the corporate piece. On the wage deals, yes Mark, 2% is a reasonable assumption. That's certainly our budgeted year assumption and that's locked away not just for this year, but for the next three or four years. I think that's important at a time when you see airlines across Europe either being threatened with strikes by their pilots and their cabin crew. We've seen it in [Harp] or we see it in some of the French airlines, easyJet seem to have regular types of strikes during the summer period. We don't have that kind of wage inflation in Ryanair. It's also important that I emphasize to investors too that we have a very sophisticated collective bargaining infrastructure within Ryanair at all of our 86 bases. This was tested by the Irish unions and it went all the way to the Irish Supreme Court who confirmed that actually we do have a collective bargaining and all of our people are covered by collective bargaining.

Everybody who works in Ryanair is also protected by the Irish Constitution where they're entirely free to join a union and they're entirely free if they so wish to have a union representative. Now the vast majority of our people don't want to be represented by unions, they prefer to deal directly with us and we'll continue to encourage that. We still scratch our heads at some of the recent coverage that came out of Scandinavia where a couple of investment funds said they weren't going to invest in Ryanair because of concerns about our labor policies. It is being driven by some not very accurate coverage from some of these proxy firms. We closed the base in Copenhagen and moved the aircraft outside of Copenhagen because the SAS unions were allowed to engage in secondary picketing and blockade our aircraft. In fact since that, we've grown to be the third largest airline in Copenhagen and we account for about 90% of Copenhagen's growth over the last two years.

But we are not going to be blackmailed or held to ransom by anybody else's union whether it's the SAS union up in Scandinavia or the Aer Lingus union in Dublin or pilot unions anywhere. And I think there is a case coming up, the model case which will come out sometime later this year is likely to result in more local contracts, which may require a change in Irish legislation where currently pilots and cabin crew have to pay their taxes in Ireland, which by the way Ireland is a high tax country for personal taxes. It would be good for us if we have a system in Europe of local contracts and the model case may bring that about sometime later this year. It will not lead to a unionization. If we're threatened by unionization in any one base, I think we will be considering either freezing or closing those bases. But it would be much more helpful to us to move to a structure of local contracts as we increasingly establish what are much more now permanent bases across 34 countries in Europe.

So, wage inflation is low. We have a very sophisticated collective bargaining system. We reject some of the idiotic criticism that came out of some Scandinavian pension forums recently that somehow we don't deal with our employees, our employees are not covered by collective bargaining when they are. And we do not see unionization being an issue for the foreseeable future. Neil, you're going to cover the currency gap?

Mark, as you know, about 25% of our revenues last year would have been sterlings and this was offset by about 20% of our non-fuel costs. You were right in saying that our projections are inclusive of currency. We don't use currencies in the business. So, our projections for every [1p] movement in the euro/sterling rate will have a plus or minus EUR15 million impact to the bottom line. Of the reductions that we saw last year, the 5% unit cost reduction, approximately over 2% of that 5% was down to currency or sterling the benefit there so it was an offset upon the revenue side. Sterling was adverse from a revenue perspective, positive from a cost perspective. As we look into where sterling is now, year-on-year sterling is actually weaker than it was at this time last year. I think sterling was trading at about EUR0.78 per sterling in first quarter last year, it's close to EUR0.86 today. That's marginally beneficial for the costs, adverse for the revenue environment. But we've no idea where the sterling's going to go. It was over EUR0.91 over the winter for example last year. We've no idea where it's going to go with the Brexit negotiations over the next number of months.

So then on the 1% unit cost reduction, that's including a currency view which suggest that actually you could have unit cost inflation ex-currency or are you stating that is 1% unit cost reduction without taking into the account the currency swings?

That is the 1% target that we have set for a full-year basis, it's currency inclusive.

Alex Paterson, Investec.

I was just wondering how you're looking at growth against profitability i.e. what is the advantage of growing capacity faster compared to perhaps redeploying capacity into markets with restructuring operators?

Good question. We try not to look as a competition between growth and profitability. What drives our trajectory is the fact that we have a pipeline of low cost aircraft orders from Boeing that now run out into 2023 that takes 200 million passengers annually. As you know, we're presently benefiting from an end of line order for our 737NGs. That ends at the end of autumn of 2018 and then we start taking our first orders of the 737 MAX 200 aircraft, the game changers, which are 197 seats and 16% lower fuel consumption per seat from the autumn of 2019 through 2023. So, I think the critical thing for us in terms of growth versus profitability as long as the growth is being driven by lower cost aircraft that reduces our operating cost per seat, as long as that growth is being stimulated across a range of airports who are competing more aggressively against each other to win our growth particularly in circumstances where their incumbent carriers are restructuring or are loss making.

And as long as that growth means that we are pushing our way into markets where incumbents and I include all of the so-called low cost carriers to the legacy carriers are retreating away from a booking capacity, away from head-to-head competition with Ryanair. Then where there may be occasionally short-term blips in the growth in fares as we had last year with a 13% decline in fares. We still delivered a 6% growth in profitability and a 14% rise in EPS. I think that will be one of the poorer years in terms of our performance. But if you look at our growth over the last three years under the first three years of AGB, we've seen profitability more than double from EUR600 million a year to now north of EUR1.3 billion over a three-year period. And frankly I see no reason why that trend won't continue over the next two to three years closer minus fuel and benign use environment, I think profitability will grow swiftly. But we would never take the view that we won't grow next year because it might harm profitability for a 6 or a 12 month period.

Frankly as long as the profitability is being driven on the back of lower cost and I think that's what separates us from every other airline in Europe, we are growing. If you look at our numbers, far and away the most impressive number last year was that our unit costs fell by 5%. And you go around and you look at the numbers being produced by easyJet and Wizz and all the other, they're all shit on costs. easyJet can't control their costs, they're rising. The best Wizz can do is flat costs, they keep adding more and more expensive aircraft in markets where they're not able to compete with us and then the legacies are yield. Either all, we're focusing on getting out of the way. So I remain very strongly convinced that we are on the right track and we have unique cost advantages over every other airline and what's different about Ryanair is our demonstrable record of driving down unit costs as we grow.

Johannes Braun, MainFirst.

Coming back to that minus 1% unit cost target for FY18, you already mentioned the benefit from weaker sterling that you might have. And I was also wondering to what extent it will also again be supported by further increase in the load factor, just trying to find out what the actual underlying cost reduction will be. And then secondly, I understand that you have now hedged the MAX order in terms of your sort of exposure and was wondering what this means in terms of longer-term CapEx so beyond 2020 if you should have now better visibility on this. Thanks.

I'll start with our load factor. We believe that load factor now at 94% will be flat, I don't think it can rise any further and I said that we haven't hedged the entirety of the 2019 MAX order. We have been hedging at the later years 2023, 2022, 2021. We have about EUR1.8 billion in hedging in place. We still have some hedging to do and we're hedging at above $1.20 to the euro and we still have some hedging to lock away in 2019 and 2020 and a bit in 2021 as well. But I would expect that our CapEx will continue sort of at somewhere between about EUR1 billion to EUR1.5 billion a year each year for the foreseeable future and we're taking delivery of in essence 50 aircraft a year, which means we have a much more like of aggressive delivery profile than any other airline in Europe. We're taking more aircraft and I'd be growing at a slightly higher percentage terms, but off a much lower base. If you look at us, we're adding 10 million, 12 million passengers a year each year for the next few years in markets where frankly we have more growth opportunities than we can handle at the moment.

So, CapEx will basically be flat despite the US dollar exchange rate that you're hedged on? Is that correct?

Thereabouts, yes.

Neil Glynn, Credit Suisse.

The first one, WiFi hasn't been mentioned in some time and I think a couple of years ago there was some mention of some kind of a sponsored model being introduced around this time in 2017. So just interested in latest thoughts on WiFi whether will be workable for you, whether you can avoid doing it if everybody else is? And then the second question on the topic of appetite for additional aircraft. As you talk to other airlines about providing short haul feed, just interested in terms of whether there's any appetite on yours or among any third parties for you taking some subfleets from airlines that maybe could do without them as a short-term fix for more aircraft?

Two things, we haven't mentioned why WiFi frankly is not up high on our program at the moment. Our concern of WiFi continues to be the technology at the moment, which involves fitting aerials to aircraft that would have about a 4% fuel drag means it is far too expensive a product with I think almost limited revenue upside. Remember our average flight is still only 1 hour and 15 minutes and the vast majority of people now getting on board our aircraft, they already have downloaded their Netflix and their whatever else is it is, they don't need WiFi and they're unlikely to pay the cost of it. We would certainly not introduce WiFi as some kind of expensive service enhancement. If it isn't revenue generating, frankly we wouldn't be introducing it and I doubt that if there's even one of the 120 million passengers we carried last year who booked Ryanair on the basis I wonder if they have WiFi. But the price gap between us and every other airline is getting wider and wider and we've seen significant very strong bookings even over this weekend.

Now whether that's related to BA or not I don't know, but strong bookings over the weekend. Really WiFi is not an issue for our customer base. On short haul feed no, I think it's highly unlikely we will take subfleets from anybody else. Nobody has a subfleet of 737-800s and nobody has them at the pricing that we have negotiated from Boeing. But if the opportunity is there as I said to the extent some of our own lease returns, if Boeing has some opportunities and if some people are canceling deliveries particularly having some of the positions that deliveries in a week as long as they are priced at our existing rates, then we would be very much keen to take additional units whether it's in 2018, 2019, 2020. But I would emphasize we're taking 50 aircraft a year growth for the next six to eight years so the fleet is growing strongly and our traffic will continue to grow strongly while driving down unit cost. And remember, we're competing in a market where almost every other airline, the best they can manage is flat unit cost in their guidance and then they miss their guidance and unit costs.

Darren McKinley, Merrion Capital.

Missed the question you answered with regard to France, I just want to know whether the positive outcome in the European court would increase the opportunities in France. So, I'll ask another question with regard to Germany. I don't think you're providing domestic flights here yet and if not, do you expect this opportunity to come in the near future? Thank you.

We are actually doing one domestic route in Germany, we do Cologne-Berlin. Frankly the German domestic market is the least attractive to us. If there's a restructuring and Air Berlin gets smaller or if Lufthansa is allowed to break almost every EU competition rule by buying Air Berlin, which would be in breach of every EU competition rule although the Germans tend to be good at breaking the rules when it suits them. I think most of our discussions with the German airports are around more international routes to and from the German airport. I think that we believe in domestics that there is capacity constraints in Berlin and that those capacity constraints maybe worse if they still go ahead and close Tegel when they open Brandon-Berg. Doing North/South Hamburg, Munich; we're not in Munich, we're in Mannheim. So, I think most of the focus and Germany is a market where we're growing very strongly. The demise of Air Berlin or a significant restructuring or resizing of Air Berlin will throw up huge opportunities I think for short haul international routes less though on the domestic network where their plans are covered very well, but have extraordinarily high air fares.

Because I was at a conference in Hamburg and the lady that was meeting me flew from Frankfurt to Hamburg and she said that the cheapest fight she could get was EUR400 which was [demand] obviously.

You've been flying by Ryanair for many years. EUR400 would be a cheap fare for Lufthansa in the German domestic market. EUR700, EUR800 is much more typical. But that's why Germany is such a potentially big market for us, but they're equally overcharging for the European routes as well.

We'll have to close this down. It's 5 o'clock Euro time so we'll have time for about two more questions.

Anand Date, Deutsche Bank.

I just wanted to understand a little bit more on ancillaries if you can give the detail. Could you maybe give some indication of how much of the ancillary revenues roughly the penalty ancillaries versus what customers actually want? I'm trying to figure out where we are on the momentum there as you move to what people actually want. And then secondly, I think you might have given us at Capital Markets Day a couple of years ago. But could you remind me how many of the passenger base actually take nothing so they don't spend anything on ancillary so we can figure out what the rest do spend? Thank you.

I don't know the answer to the second part of the question. If I had, I'm not sure we'd give it to you. But let me give you the ancillaries. Very little amount of ancillaries and certainly none of the growth is penalty. The great thing about the penalties and if you look at penalties, the things like airport check in, excess baggage, gate bags; that has actually declined, I don't know what the number is, but probably it's an immaterial number now. All of the growth in ancillaries is coming from providing people with services that they actually want and more importantly with Labs at the time when they want it. We know people so we are seeing significant growth in things like reserved seating, priority boarding. The bags income has declined because we are allowing people to bring two carry-on bags onboard.

I think that is causing us some kind of operational issues because people are inclined to bring too large carry-on bags and the plane can hold the bags and so I think we would have to do something about the bag policy over the next 12 months not because we want to penalize people or fine people, we just want people to observe or at least obey what our rules are which is a second smaller carry-on bag. So in terms of the analysis, none of the growth is the penalties. In fact the income from penalties declined very rapidly because it disappears out of the system very quickly as people's behavior changes. All of the growth in ancillaries is coming from providing product and the services that people actually want at the time that they want them. And in terms of the passenger base, I've no idea how many passengers take no ancillaries though I suspect that at least there will be a small number if you include the in-flight sales. Next question, please, which will be our last question.

Michael Kuhn, Societe Generale.

Two quick ones on Germany. Firstly, in Frankfurt Airport, would be interested in your initial experiences there and also what premium you can get on Frankfurt International versus Frankfurt Hahn? And secondly on Air Berlin, as you have mentioned Lufthansa's ambition to take it over, you have opposed the deal. Can you take legal measures against such a deal and would you be willing to do so? Thank you.

David, would you do the experience in Frankfurt airport and I might ask Juliusz Komorek to touch on the legal issues where Lufthansa tried try to establish a greater approach and monopoly by taking over Air Berlin. David?

I'm not going to talk specifically about yields in Hahn, safe to say that we are satisfied. We picked four excellent routes in any event, which is in overpriced Malaga, Kansai, (inaudible); all of which are going very very well. We're equally happy with our Hahn operations to those routes. Operationally Frankfurt has been great. They're very competent, very cooperative, very helpful. We're looking forward to growing from two to seven aircraft there over the next few months.

And Juliusz, do you want to touch on the legal issues, competition issues Air Berlin?

Juliusz has just left the call.

We believe frankly it's an impossibility under German or EU competition rules that Lufthansa be allowed to acquire Air Berlin although it clearly seems to be what's happening. But then under competition rules, Lufthansa doing (inaudible) at buying 40 of Air Berlin's aircraft under a [wetleif] that got rushed through or rubberstamped by the German Cartel office was also a joke. Given that they're Germans and therefore they can make up the EU laws and they go along, we think it will result in a significant restructuring of Air Berlin. We think there would have to be significant slop concessions at the German airports. That would certainly be good for our expansion in Germany where we are now currently running neck and neck or just behind Air Berlin as the Number 2 airline in Germany. I wouldn't want to overdo the Germany.

We'll also be expanding rapidly in Italy, in Spain, in Poland we are expanding rapidly. The issue for us remains we have far more growth opportunities than we can effectively handle at the moment and if there was a Lufthansa-Air Berlin merger, we would oppose it with all of the resources at our disposal. But recognize that ultimately in the European world, what the German and the French generally want get rushed through or they change the rules for them and we would put that to marked contrast between BA being allowed to buy British Midland and Lufthansa being allowed Air Berlin with our three failed attempts to acquire Mickey Mouse Airline in Ireland, which apparently was going to be the end of European aviation as we know it. So it's all political, but we think there's nothing but opportunity in it for us.

I'm sorry we have go now. We are starting road shows. We have I think 14 road show teams on the road so we have extensive coverage in the US, in Europe, every part of it. If anybody hasn't got a meeting and wants one this week, please contact either through our (inaudible) or contact us through Shane O'Toole in the Investor Relations team in Dublin. Can I leave you with the thought that the business continues to perform very well. We are at a period now where we're adding low cost aircraft for the next four, five, six years. We are growing strongly and I think what gives me great confidence is the fact that we are taking down unit costs very significantly in a market where all of our competitors are challenged on costs; best they can promise you is flat or smaller rises in costs.

We are taking down costs, we're taking down airfares, and we are going to continue to expand very aggressively and I think very profitably over the coming years and hopefully that will mean we are continuing to deliver very significant value to our shareholders through the share buyback program. As I said, the share buyback EUR600 million has been authorized to start at the end of this year. We should complete that by the end of October and I hope that the results for shareholders out of that buyback will be as impressive as they have been over the last 12 months. So, thank you very much and I hope we'll see you all at some stage over the period this week on the road shows. Thank you.

This now concludes the call. Thank you all very much for attending. You can now disconnect your lines.